17 The Economics of Transportation Network Growth

A number of factors influence the efficiency, productivity, and welfare of transportation networks. Travel demand, user costs, and facility supply costs equili-brate on various time scales under a set of pricing (taxes and tolls), investment and ownership policies. Two types of equilibria exist in a transportation network, short-run traffic equilibrium and long-run supply-demand equilibrium. The phenomenon of traffic equilibrium is explored with a fixed transportation network where the capacity of links is given. Even though investment-and ownership-related policies are not of major concern for studies of traffic equilibrium, it is still a complex problem due to network congestion effects, variations of pricing rules, and multidimensionality of user choices. In order to understand the long-run supply demand equilibrium in a transportation network, one has to consider all of the above-mentioned factors in a coherent analytical framework. We refer to this research problem as the transportation network growth problem, because the network evolves and link capacity is not fixed in the long run. The growth (and decline) of transportation networks obviously affects the social and economic activities that a region can support, yet the dynamics of how such growth occurs is one of the least understood areas in transportation, geography , urban economics, and regional science. The growth of the transportation network is determined by the total amount of investment and the investment rule, both of which could change over time. What has become known as the network design problem in the transportation literature simplifies the network growth problem in three aspects: (1) investment decisions are considered independent of pricing rules and ownership structures; (2) only the optimal investment rule is considered ; (3) inter-dependencies of sequential investment decisions are ignored. In